Despite today's low interest rates, expected age to become mortgage-free slowly creeps up
TORONTO, July 21, 2014 /CNW/ - A new CIBC (TSX: CM) (NYSE: CM) poll finds there has been a significant decrease in the number of Canadians using today's low interest rates as an opportunity to accelerate repayment of their mortgages. While over half of Canadians with mortgages (55 per cent) are taking one or more actions to pay their mortgages down sooner, a similar poll last year found that more than two-thirds (68 per cent) were taking steps to accelerate their repayments. The poll also finds Canadians with mortgages saying, on average, that they will be 58 years of age before they become mortgage-free.
Key findings of the poll include:
- 55 per cent of Canadians with mortgages are taking one or more actions to repay their mortgage faster, down from 68 per cent in a similar poll last year
- Among those taking some action:
- 32 per cent accelerated their payment frequency (down from 42 per cent in 2013)
- 28 per cent increased their payment amount (compared to 30 per cent last year)
- 18 per cent made a prepayment / lump sum payment (15 per cent in 2013)
- 58 is the average age that Canadians with mortgages expect to be mortgage-free, a small increase from age 57 in last year's poll
"A mortgage is the largest debt most Canadians will take on in their lifetime, and being mortgage-free is an important goal for many," says Barry Gollom, Vice President, Secured Lending and Product Policy, CIBC. "With current low interest rates, this may be an opportune time to make progress against your mortgage - even a few small changes can make a big difference in the length of time it takes to pay off your mortgage and the amount you pay in interest charges."
Balancing your mortgage against other financial goals
Recent research from CIBC shows that Canadians are spending more this year on other items such as home renovations (up 30 per cent from a year ago), and summer vacations (up 20 per cent from last year).
"With mortgage rates remaining relatively stable and at historic lows for the last few years, some Canadians may not be as focused on paying down their mortgages as when interest rates are higher," notes Mr. Gollom. "Generally, paying off debt as quickly as possible is a smart decision, but you do need to ensure you're not focusing on your mortgage at the expense of your other financial plans, or by increasing debt elsewhere."
Small changes can result in big savings of time and money
Paying off your mortgage sooner can result in significant savings, which can have a large impact when applied to your other financial goals.
Here are some specific examples to show how the savings can add up, using a mortgage of $250,000 (the Canadian average), with a 4.99% interest rate and a 25-year amortization, and regular monthly payments of $1,453:
- Increase payment amount - Taking the regular monthly payment amount and topping it up by $147 per month would save you four years and $34,362 in interest on your mortgage.
- Accelerate payment frequency - Most Canadians are paid every two weeks; aligning your mortgage payments with your pay deposit and making accelerated bi-weekly payments of $726 would result in saving four years off the life of your mortgage, and a reduction of $30,970 in interest charges. Combining this with increased payments as above (an extra $74 bi-weekly) would together save you seven years and $57,182.
- Make pre-payments/lump sum payments - Not a lot of families have a few thousand "extra" dollars lying around, but even using your annual tax refund towards your mortgage can make a difference. The average Canadian tax refund is $1,600 - applying that amount to your mortgage each year would reduce the amortization by four years and save you $33,103 in interest. Using all three of these strategies in combination would shave nine years off the life of your mortgage, and result in total savings of $73,785.
"Employing one or more of these strategies does take some planning and discipline," notes Mr. Gollom. "If becoming mortgage-free sooner is something you want to achieve, it's important to look at your mortgage as part of your overall financial picture, and to balance your mortgage payment plan against your other goals."
KEY POLL FINDINGS
Average age Canadians expect to be mortgage-free, by region:
|Manitoba and Saskatchewan||58|
Percentage of Canadians who have taken some action to repay their mortgage faster, by region:
|Manitoba and Saskatchewan||51%|
From May 21st to May 22nd 2014, an online survey was conducted among 1,509 randomly selected Canadian adults who are Angus Reid Forum panelists. The margin of error—which measures sampling variability—is +/- 2.53%, 19 times out of 20. The results have been statistically weighted according to education, age, gender and region (and in Quebec language) Census data to ensure a sample representative of the entire adult population of Canada. Discrepancies in or between totals are due to rounding. Comparisons to 2013 are based on a CIBC poll conducted by Leger Marketing via a Web survey conducted in February.
CIBC is a leading Canadian-based global financial institution with nearly 11 million personal banking and business clients. Through our three major business units - Retail and Business Banking, Wealth Management and Wholesale Banking - CIBC offers a full range of products and services through its comprehensive electronic banking network, branches and offices across Canada with offices in the United States and around the world. You can find other news releases and information about CIBC in our Media Centre on our corporate website at www.cibc.com.
For further information:
Caroline Van Hasselt, Director, External Communications, 416-784-6699 or [email protected]